The Upside: October’s top five market highlights

[00:01:16] Kyle Cheropita: Hello, everyone, and welcome to The Upside. I'm Kyle Cheropita. As we do each month on today's show we're counting down the top Fidelity Connects highlights from this month. Connects is first presented as a live webcast for financial professionals and then released on replay for all as a video podcast with new episodes dropping daily. Let's take a look at some of the big stories from October, a month that saw the TSX, Canada's benchmark index, top 30,000 points for the first time. Gold has entered uncharted territory. The safe haven metal surged in recent months crossing $4,300 an ounce for the first time. Here is portfolio manager Joe Overdevest who manages Fidelity Global Natural Resources Fund commenting on the gold story, as well as uranium. Joe joined host Pamela Ritchie on Connects on October 21st and had some thoughts on uranium which then led into this week's news of Canada's Cameco and Brookfield signing an $80 billion nuclear reactor deal with the U.S. government. Take a look.

[00:02:15] Pamela Ritchie: Gold tripping over itself to get higher. Any reason to think that will slow down from your perspective?

[00:02:21] Joe Overdevest: I think right now we have to step back. Why is it up if we're going to figure out where it's going. I think the factors in place are still there for it to keep going but let's take a step back. Why? Well, first of all, sometimes gold moves because it's an alternative currency, because people are negative on, particularly, the U.S. dollar or other currencies, or they're making a view that interest rates are about to fall which would mean negative real rates, or there's speculation because gold is driven sometimes by speculation. Past times you'll see more of a U.S. dollar trade or speculation gold and silver both go up. What's interesting about the last few years where gold's had a pretty big run, it's front page news recently but it's actually been quietly doing well for a few years now.

[00:03:05] Pamela Ritchie: Since the war.

[00:03:06] Joe Overdevest: Since the Ukraine war, yes. Ukraine crisis happens and that was a wake-up call for a lot of the other central banks around the world and countries saying, maybe we need to own a little less of U.S. dollar Treasuries and so on the margin started buying more gold. That's why you've seen gold move so well, and actually silver do well but not as well as the past. This cycle is more driven from central bankers and less about actual speculation. Also, I think what's more recently now in the headlines is basement of currencies in general. People are worried ... politics these days, everybody seems to be spending higher and higher budgets. It's like whatever the people want we're giving it to them. But deficits are growing across, especially, the G7 countries. There's a concern and that's where you're seeing priced into, potentially, gold is that at some point in time that's really negative on currencies and a potential debasement of them. If you're gonna get out of this debt situation ... gold is up on central bank buying and a lack of confidence in currencies, especially what we call currency debasement. Until maybe the governments start hunkering down and balancing budgets, or central bankers feel more comfortable with the U.S. dollar Treasury, you definitely have those pillars still there evident.

[00:04:21] Pamela Ritchie: That's fascinating. If we go further afield to things like nuclear which has been discussed for a long time and the stock prices on the uranium side have been, I mean, they've been a story that I wonder if it's almost over for a little while because it's been such a run-up for the last couple of years. Broadening out to other energy, types of energy, what else is interesting to you as an investor?

[00:04:43] Joe Overdevest: I think uranium is still interesting. You have to watch how the U.S. government looks at this. The U.S. government right now is driving a big part of what's going on in commodities because they're writing checks, number one, number two, they're using these commodities in negotiations. You're seeing that with Australia, potentially here in Canada. The uranium one, that chapter may still be written. It'll be interesting if the U.S. government looks at how much uranium is done through Russia and goes, you know what, we need to make sure this is maybe less reliant on Russia going forward. Canada would be an obvious one to look towards kind of thing as a benefit to us. Again, maybe it's saying we're going to maybe guarantee a certain price but we want direct ownership of all your supply or a major part of your supply and we don't want it going to other parts of the world, potentially.

[00:05:32] When it looks at other parts of the value chain in terms of energy, obviously, oil right now has an overhang with OPEC. I think with natural gas people get excited because there's a lot of energy needed for these utilities. You take a step back even further, these AI data centres, every time we talk the numbers keep getting bigger. Of course, numbers can change but the numbers are quite big. That grid, especially in North America, there's been really no major demand on it for for almost two decades, is now seeing major demand with data centres. We're going to need wind, we're going to need solar, we're going to need nuclear, we're going to need gas.

[00:06:08] Pamela Ritchie: Do you find these markets intellectually just pretty fascinating? It does feel like we're on the cusp of revolutions within the marketplace and the industrial revolution.

[00:06:18] Joe Overdevest: I think one of the reasons I, and many of the people that work here, we know we love Fidelity. One of the things about Fidelity and the markets are generally intellectually stimulating. For some people it might be intellectually overwhelming or it could be stressful but I think we don't get stressed because they give us an opportunity. We look at we have the resources, we have the investment team of 400 investment professionals around the world, take these opportunities to say whenever there's change there's opportunity. When you're in these situations that could be very volatile that's why you're not stressed, that's why you're not aggravated. You're just actually excited to what could potentially turn over. As you said, things are changing and the view on copper or uranium could change with a tweet. All of a sudden someone goes this is a strategic thing that we need to do, it could drastically benefit us, we have to be ready right. On the flip side as well...

[00:07:09] Pamela Ritchie: It could go the other way.

[00:07:10] Joe Overdevest: Yeah, exactly. You're right, commodities are changing, currencies are changing, the world is changing and just like anything that's the world we live in and sometimes are a little less volatile and sometimes a little more exciting. This is definitely more of an exciting time.

[00:07:28] Kyle Cheropita: As I mentioned at the beginning of this show the TSX topped 30,000 points for the first time this month. Max Lemieux, portfolio manager of Fidelity True North Fund, joined Connects this month and shared these thoughts on Canada as well as patience and diversification in investing.

[00:07:44] Pamela Ritchie: Let's talk a little bit about Canada's reaping incredible windfalls on the stock market itself. There's a whole other story, of course, that goes along with the economy but it's been a pretty fantastic time. How did we manage to avoid the worst?

[00:08:02] Max Lemieux: It's a nice surprise, let's put it this way, since the first Black Monday of February, if you remember. It's quite exceptional but let's face it, a couple of factors that we really need to earmark here is the fact that most Canadian companies, especially industrials because industrials are the real victim of this tariff saga or crisis, the reality is that most Canadian goods are still sheltered under the free trade agreement. This is currently being renegotiated, there's a lot of back and forth. The new government led by Mr. Carney, I think, is making headways based on what we're hearing from Washington, Ottawa, large banks, large corporations. There's a lot of stuff happening in the background that we don't fully know today.

[00:08:54] The tariffs imposed on Canada are still one of the lowest in the world compared to the other countries, other geographies. We've really escaped the worst case scenario on that front. That touches many companies. Number two, the Canadian banks have also escaped another risk. It doesn't mean that this will be permanent but the reality is there's been no real significant increase on loan loss provision. Those potential loan losses, those ratios have not gone back to the normal that we've seen in previous cycles. It's important to say that maybe where we've been misled is that the quality of the lending on the books of the Canadian banks might be somewhat similar that what we've seen in the U.S., which is the following. In the U.S. the large diversified banks had about pre-GFC, 2008, they usually had about 20, 22% of their books lent to subprime. That was the most risky part of their portfolio. Now it represents 10% to 12% of the books. That's why we've not seen much in terms of credit accident in the U.S.

[00:10:14] I think Canada has probably followed as well. Exposure to subprime probably much lower than pre-2008. Therefore, I think the most risky type of lending has moved, gradually move towards private credit, private equity type of investors so we don't see it as much. There are a few cracks that appeared more recently in the past few weeks in the U.S. but in Canada that's not something that we've seen so far, but we'll see. Listen, the cycle is not over but the banks, basically, have been very resilient, has helped Canada. The last thing that is important to mention is gold, precious metals, obviously nothing to do with Canada. That's really about the global geopolitics and negative real rates, central banks in the world buying back gold in a big way over the past two years, three years. Really, I think it started to pivot when the Russians invaded Ukraine so a lot of countries decided to diversify away from the USD. We'll see how long that lasts but so far there seems to be a trend.

[00:11:17] I was reading something about the World Gold Council working on — they've been working on this for years but it seems that it's getting some progression on this front as sort of digital gold which could eventually be used as a collateral. When banks want to lend you money you might be able to use gold as part of your collateral. We'll see where it goes. Of course, there's a lot of sentiment. The participants in the marketplace, there are a lot individual investors. It's up to 20% of the daily volume in the U.S. It's very reminiscent, again, of the tech bubble of 2000 except that now since COVID we've seen three small bubbles. The bubbles are not as big but they're more frequent. That's kind of the pattern so far that we've seen. All in all, Canada has been lucky in that big global mess, I would say, and it's a nice surprise.

[00:12:17] Kyle Cheropita: Next up is Ben Holton, equity research analyst covering tech and software who joined Connects earlier in the month. Here he is commenting on AI winners and losers, the Mag Seven and disruptors he is seeing in both tech and software.

[00:12:31] Pamela Ritchie: Give us an example that we've watched because, I mean, there are examples where they've been sort of, oh, well, that stock's not going to make it, they're behind.

[00:12:39] Ben Holton: Absolutely. The market has been divided into AI winners and AI losers. That debate is far from settled. You see things bounce back and forth from one bucket to the other. That's where the opportunity lies. Google is a perfect example of this. From February until April this year Google was dead. No one was going to search Google anymore. The stock was in the dumpster.

[00:13:00] Pamela Ritchie: Search was over, search as we knew it.

[00:13:02] Ben Holton: ChatGPT or Perplexity, pick your favourite AI poison, was going to win. Since April Google stock is up 70% and touched all-time highs last month. You can swing back and forth very quickly from winner to loser.

[00:13:17] Pamela Ritchie: Because Gemini is good and people like it.

[00:13:21] Ben Holton: Yeah, and numbers aren't really changing. Google's earnings estimates did not change by 70% since April. This is all multiple and it's all sentiment driven. Of course, that's discounting the future outlook for Google.

[00:13:37] Pamela Ritchie: It's not like Google suddenly said in April, listen, actually, we're turning a huge corner here, it's going to be massive and investors flocked in.

[00:13:46] Ben Holton: I think with Google there was a perception they weren't moving fast enough. You have seen all of the companies move fast and that can change perception.

[00:13:56] Pamela Ritchie: Tell us a little bit about the other companies that we know as the Mag Seven, the household names that we've all been talking about, some people investing in, and that are holding up the S&P 500 because they're so much of it. Take us into the story of sort of the froth, the discussion, the fear, the risk and so on. Do you see that? You look at these companies all day, you see what they're doing on an AI front, is it worth it? Is it not, the CapEx story?

[00:14:22] Ben Holton: A lot there. Of the Mag Seven, most of them, call it Mag Six, are not crazily valued relative to the market, relative to their history, despite being such a big piece of the market and performing quite well year-to-date for the most part. The froth is in the perception of what the future looks like. I think that's more down cap where you're seeing some crazy multiples, crazy meaning you're either priced as you're dead or priced as you've already won. Again, debate's not settled there.

[00:15:00] Pamela Ritchie: These are companies, for instance, that have had blast-off success because they're doing something in the realm. These are the disruptors, essentially. We've got the stalwarts, to an extent, the incumbents, and then the disruptors. How vast is that field?

[00:15:16] Ben Holton: Most of the disruptors on the software layer are still in the private markets. Most of the incumbents have been put into the AI loser bucket. There's a debate on that, whether it's right or wrong, that's the way the market is sitting today. Now, in the picks and shovels there you're seeing more public market success. The hardware providers, the cloud providers, that's where you're seeing definitely more AI winner status applied to public companies.

[00:15:49] Pamela Ritchie: We talk a lot about the data centres and what it takes to make them work properly, there's the building of them, the construction side of things but then there's cloud, which we've been talking about for years, everyone's going to need more capacity. This is a whole new realm of capacity that's going to be needed.

[00:16:06] Ben Holton: Microsoft's CTO was talking this week at a conference and he said a massive crunch of capacity is an understatement. What they are seeing is just insatiable demand. You're seeing this across every cloud player. This is why when we're talking about CapEx numbers we're having to move from billions to tens of billions to hundreds of billions and now some are talking trillions. Let's just be clear. Those are insane numbers that you need to start having value out the other side for something not to go really, really wrong.

[00:16:45] Pamela Ritchie: This is being funded by the big companies to a larger extent, the debt origination, concerns there? I mean, these are big companies that have killer cash flow so they're generally seen as fine. That said, there's a lot of debt being issued for this.

[00:16:59] Ben Holton: GPU financing has become a thing. That should scare some people. If we bring it back right to the start the pace of AI is so fast and what it can do today versus what it could do a month ago is changing perception on how valuable this could be. Right now it is full steam ahead.

[00:17:20] Kyle Cheropita: If you'd like to hear more from Ben please join us on November 24th's Upside where I'll be sitting down with Ben and his equity analyst colleague, Jonathan Singh, visiting from Fidelity's London office. Speaking of Fidelity's London office, up next is Tom Stevenson, investment director at Fidelity International. Tom will take us through the year we've had through his lens.

[00:17:40] Pamela Ritchie: Delighted to have you here and to go through parts of this outlook and some of the prolific writing, actually, that you do You're a journalist in your own right and we've been reading some of these articles. Let's talk a little bit about this moment that you've been capturing. The melt-up Scenario is something we've discussed. You've discussed it certainly in articles. What are we meant to do with that?

[00:18:04] Tom Stevenson: Let's look at where we are. We've just literally come to the end of the third quarter, end of September. I was looking at the data for various markets around the world over the last three months, and indeed over the first nine months of 2025. It's been a pretty extraordinary roller coaster. The last three months we've had extremely strong performance. You mentioned emerging markets there, China very strong. In the UK pretty strong markets, the U.S. pretty strong. That builds on the first six months of the year which, let's not forget, included a pretty severe market wobble around those trade tariffs in April. Despite that, add it all together and we've got total returns of about 30% in Europe, about 20% in the UK, about 15% in the U.S., Japan up by a similar amount, China up by a similar amount. Really, wherever you look across the world the first nine months of 2025 have been pretty strong.

[00:19:13] We're building on two extremely strong years before that, 2023, 2024 were both good. You might have expected going into 2025 we'd have a slower year, maybe even a correction. There was a lot of concern at the beginning of the year about trade tariffs and other policies from the incoming Trump administration. It hasn't turned out that way, it's been another really strong market. I think that is starting to raise questions. Parallels are being drawn. Echoes of the 1999 dot-com bubble are really beginning to be discussed seriously. Where are we in that in that cycle? It feels to me like if you draw that parallel we're somewhere in the sort of 1998 to 1999 period at the end of a long bull market. Whether we're in 1998 or 1999 is a big question. They are very different situations. At the end of a bull market it's a rewarding time to be an investor. No one wants to be out of the market at that point in the cycle. I think that's where we are. That's the question which investors are asking at the moment, are we '98 or are we '99?

[00:20:25] Pamela Ritchie: This has a lot to do with the discussion of what's going on in the U.S. with those particular stocks that we know of, and various related ones as well. As you point out, the returns across the globe have been pretty extraordinary. Do we call it a melt-up in other parts around the world or are we just specifically talking about comparisons to certain types of bubbles? They're all a bit different but in the U.S. is this a global story, is it a contagion story?

[00:20:54] Tom Stevenson: I think that's a really important question, it's a really good question. The market is beginning to feel speculative in nature but it's in quite a specific area. It grew out of the Magnificent Seven, the tech stock bubble. I think that was largely justified by strong earnings growth with those companies. What we're seeing now is it's broadening out, the speculative nature of the market is broadening out. We're seeing quite a lot of non-profitable tech stocks beginning to perform really well. Over the summer we saw that in particular in the US. I think your distinction between what's going on in the U.S. and what's going on in the rest of the world is really important.

[00:21:41] If you think about the valuation side of this, valuations in the U.S. are high, they're not super high, they're actually not as high as they were 25 years ago, but if you roll that out to the rest of the world and you look at where markets like the UK and Europe and Japan and China sit within their 20-year range, they're sort of bang in the middle of their range. The markets are not too stretched outside the U.S. I think that's a very important distinction. When people talk about are we rerunning the dot-com bubble, what they're really talking about is are we rerunning a technology bubble? For internet 1999 we're talking about artificial intelligence 2025. It's really a U.S. story, it's not really a global story. I think the growth in markets has spilled out to the rest of the world but I think the overvaluation story, the excessive exuberance story, is not relevant to the world yet.

[00:22:49] Kyle Cheropita: Our final clip today features portfolio manager Darren Lekkerkerker who celebrated the 10-year anniversary of his Fidelity North American Equity class this month. With host Glen Davidson Darren reflects on his time managing the fund, his overall strategy and his 20-plus years here at Fidelity.

[00:23:05] Glen Davidson: This month, 10 years on North American Equity Class, congratulations.

[00:23:09] Darren Lekkerkerker: Thank you very much. It just feels like yesterday for me.

[00:23:12] Glen Davidson: The time has gone so quickly. Let me take you back a little bit and take our audience back a little bit. You started at Fidelity in 2004. Then in '09 you took on the equity sub-portfolio of the Canadian Balanced portfolio. Then you started running Global Natural Resources as well with Joe. Then in '15 North American Equity Class was put together. I recall there was high demand. Financial advisors that we talked to on the sales team were always saying, Darren's doing so well, he's winning all these awards, he's really contributing to the funds that he's part of, when is he going to have his own fund? Then it happened in '15, 10 years ago. How did that all come together?

[00:23:57] Darren Lekkerkerker: It does feel like it was just yesterday. I think what happened was I wanted to have a standalone fund. I was excited to have a broader mandate that also not only included Canada but also focused on the U.S. I kind of thought ... at that point the U.S. was doing well. The outlook for the U.S. was really strong. Clearly, U.S. has done really well for the past 10 years and it's benefited the fund. The structure of the fund is 70 U.S. and 30 Canadian but there's a lot of flexibility. It can go to zero Canada or 50% Canada with the balance being U.S. I can add some global in there as well.  I wanted to have a broader mandate. I thought focusing on the U.S. would result in better absolute performance. I think just given the U.S. has a higher focus on technology, health care, consumer, I thought that there'd be more secular growth and more innovative companies that would help me not only in picking for that fund but also picking for my Canadian stocks as well.

[00:24:59] Glen Davidson: I think around 62 holdings right now. Let's talk about the make-up of the portfolio. That's not an immense number and it's quite concentrated, is that something that you purposely aim for?

[00:25:10] Darren Lekkerkerker: I would like to have it greater concentrated. I think mathematically what matters more for your performance is what is your concentration in your top 10. For me that's generally between 40 to 50%. That's very concentrated in having the top 10 ideas be that much. These are ideas that I really like. They're high quality businesses and we've done a lot of due diligence on them. My thoughts are these 10 stocks will drive the performance of the fund. Now you're saying 62, that sounds a bit high. Generally, I would like that number to be between 40 and 50 positions. There are certain times where I'm getting into or out of names where it can be a little higher than that so I will work to kind of probably trim that down a little bit.

[00:25:54] Glen Davidson: Is there a mentor that you had in the past or currently that kind of led you down that path?

[00:26:00] Darren Lekkerkerker: I'm super lucky at Fidelity. We have so many really smart investors here, and a lot of our viewers will know that. Initially one of my mentors was Will Danoff. When I was an analyst in Boston my first job was covering Canadian consumer staples. Then I got Canadian health care. There was one or two interesting companies and 10 really bad companies. When I hosted these companies for meetings almost no PMs would come but Will Danoff came to every meeting despite managing many billions of dollars and being THE guy at Fidelity. In my head I was like the reason he's the guy and his performance is so good is because of work ethic. He's not just sitting in his office or going out for lunch, he's actually going to company meetings and doing the legwork. I tried to take that lesson into my own investment process.

[00:26:52] I think another person who actually was an analyst at the same time as me, we were promoted at the time, is my friend Mark Schmehl who's obviously done extremely well. He's got more of a growth mindset whereas I have more of quality mindset. I think one of the things that he's talked about is how he's the best person at selling stocks and I've tried to learn that from him and not be that person that says, oh, I always sell too early because why would I want to give up performance for my unit holders.

[00:27:17] Glen Davidson: That brings up a great point about the time that you spend in Boston, and I'm glad you mentioned that because you were around, even Peter Lynch was in from time to time, Joel Tillinghast is there, Will Danoff and so on, and then your own peers like Mark and others that you talked about. That was really formative for you and then the team all moved up here to Canada which is awesome. The Canadian component right now is around 32% in North American Equity Class, you said that can go to zero. Why have you got the 32% mix right now?

[00:27:47] Darren Lekkerkerker: One thing I want to point out is don't think of that as 32% of a Canadian fund. That's just the best of Canadian ideas and it's not going to be a full Canadian fund. If I don't like a large sector of Canada I just will not own it. That's not 32% because it's algorithm determined that that's the ideal number. It's more just driven by individual ideas. Obviously, Canada has been pretty strong this year, actually has outperformed the U.S. by several percentage points in both the currency and the index. There has been a lot of good ideas within Canada whether it is Canadian banks, uranium has been really strong, gold has been strong, it's clearly volatile, it's been weak within the past last week, also copper.  There's a lot of good idiosyncratic also within industrials, there's a a lot of good idiosyncratic ideas, and also retail.

[00:28:52] Kyle Cheropita: I hope you enjoyed today's show. Each clip you saw is from a full 30-minute video podcast available on YouTube, Spotify, Apple Podcasts, and more. Fresh content is released daily so please look up The Upside or Fidelity Connects podcast for more. The Upside does start as a streamed webcast where you can learn to be a better investor and hear from some of Canada's best stock pickers and leading financial experts. To not miss a show head to fidelity.ca and sign up for The Upside newsletter. Thanks for watching today and I hope that you'll join us again on The Upside. I'm Kyle Cheropita.